PA, Reuters and others have reported calls by opposition politicians and union leaders for another increase in the windfall taxes on energy producers, linked to BP’s and Shell’s latest global profits announcements.
Response: Offshore Energies UK, the trade body for the UK’s offshore energy industries and supply chain companies, said such a levy risked breaching global tax agreements and so could never be implemented. [For global oil and gas producers, UK operations will typically be just a fraction of their overall portfolio – probably less than 10% for the UK majors.]
Mike Tholen, OEUK’s director of sustainability, said it was wrong to offer false hopes to hard-pressed consumers. “These calls for an increase in the UK windfall tax, linked to the global profits of energy producers, are deliberately misleading. The UK is subject to global tax agreements which say that it cannot tax profits made by companies outside of the UK. That means such a tax could never be implemented. It is irresponsible to pretend otherwise.
“Companies operating within the UK already face a 75% windfall tax on profits made in UK waters – the highest for any industry. That means the UK government is actually the biggest beneficiary of the high prices generated by the Ukraine conflict.
“That rate of UK tax is already so high it risks driving companies out of UK waters. All parties have acknowledged that we will need oil and gas for decades to come. so why risk damaging our own secure supplies from the North Sea?
“That will reduce production, undermine the UK’s energy security, destroy jobs and ironically, drive down tax revenues. It will also damage the skilled workforce needed to drive the transition to low carbon energies.
“The key point here is that multinationals like Shell and BP are not single companies but groups, with multiple overseas subsidiaries. Most of their profits are made in other countries which is also where those profits are taxed. The UK cannot then impose a second tax just because the group has its headquarters in the UK. If we did, they would all leave.
“It would also be invidious for the UK to tax profits made in other countries. The taxes on those revenues belong to the countries where they were generated. It would be wrong for another country’s revenues to be effectively seized by the UK. “Our industry wants to work with politicians of all parties to build the UK’s low-carbon energy future. We need long-term energy policy plus fiscal and regulatory stability if we are to achieve net zero.”
NOTES
GUIDANCE FOR JOURNALISTS, NEWS EDITORS AND SUB-EDITORS
These notes aim to address a common confusion regarding the relationship between global profits and UK taxation. This confusion arises from the assumption that profits from global operations are subject to UK taxes.
This has led some journalists and policymakers to suggest that UK taxes like the Energy Profits Levy (or windfall tax) are applicable to the global profits announced by companies based or operating in the UK.
This assumption is incorrect. Here’s why:
- For oil and gas producers the relevant UK taxes (Corporation Tax, Supplementary Charge and the EPL) apply only to profits made on oil and gas extracted in UK waters.
- The combined rate of these taxes is 75% – the highest rate for any UK sector.
- These UK taxes will apply to profit earned by foreign-owned companies operating in UK waters.
- They will not apply to profit earned by subsidiaries of UK companies operating overseas.
Key Points:
- It is inaccurate to suggest that UK taxes are applicable to global profits.
- The UK Treasury can only tax a company’s profit made from its UK operations.
- It cannot tax revenues generated in other countries – because they have already been taxed in those countries.
- For larger (global) oil and gas producers, UK operations will be a fraction of their overall portfolio – probably less than 10% for the UK majors.
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